Insurance Coverage for COVID-19-Related Employment Claims
COVID-19 has impacted the day-to-day operations of businesses in virtually every sector of the economy. Whether it be layoffs, furloughs, reductions in pay or available hours, nearly every business has been impacted in some way. As a result, employers should prepare for potential claims by current and former employees whose jobs have been, and will continue to be, affected.
For many employers, Employment Practices Liability insurance policies (“EPL”) are the first line of defense against workplace-related claims. However, many employers fail to consider the full scope of coverage that may be available to them under their EPL policies, often thinking that coverage is limited to discrimination, harassment, and related claims, in turn, failing to realize that wrongful termination, breach of employment agreement, and other workplace-related claims may also be covered.
Where employers are faced with employment claims associated with COVID-19 that are not necessarily discrimination-related — for instance, where the claimant alleges unfair or inconsistent treatment as a result of workplace changes necessitated by COVID-19 — employers may fail to tender such claims to their EPL insurer because they do not believe that they have coverage. That would be a mistake.
COVID-19-Related Losses and an Insurer’s Duty to Defend
While some EPL policies have exclusions applicable to pollutants or contaminants, many EPL policies do not include viruses within the definition of those terms. As a result, EPL policies are generally not affected by such exclusions. Even if an exclusion in your EPL policy could potentially implicate viruses, the burden would shift to the insurer to prove that COVID-19 — rather than the economic fallout caused by COVID-19 or some other cause — was the proximate cause of the employer's loss.
A key benefit of EPL coverage is to mitigate the cost of defending a claim, as the cost of defending a claim may ultimately exceed any settlement or judgment. Many EPL policies are written on a duty to defend basis, meaning that so long as there is possibility of coverage for any claim alleged, the insurer must defend the entire case.
The Amount of a Claim’s Alleged Damages Does Not Determine Coverage
Many EPL policies attempt to limit the amount of coverage available by way of carveouts. While such carveouts should not affect an insurer's duty to defend, they may limit coverage for certain components of settlements or judgments.
For example, EPL policies may attempt to carve out "amounts due under any employment agreement" from the definition of "loss," even though the policy includes claims for breach of employment agreement as a covered act. However, a claim referencing an amount allegedly due under an employment agreement will not automatically determine coverage for that claim, particularly where the claimant is seeking damages from other, noncontractual claims.
Because settlements of employment-related claims are often entered into on a lump-sum basis, employers should be particularly mindful of allocation issues when structuring settlement agreements so as to ensure the maximum amount of coverage, especially when dealing with both covered and noncovered claims.
Denials or Limitations of EPL Coverage
In conclusion, most workplace claims will arguably trigger EPL coverage and will not be excluded simply because COVID-19 may have been a causative or contributing factor in the circumstances underlying the claim. Accordingly, employers should be skeptical of denials or limitations of coverage that their EPL insurers may seek to impose on employment-related claims, regardless of the extent to which COVID-19 may be at issue.
If you need assistance reviewing an EPL policy to determine coverage, I strongly recommend consulting with an experienced employment attorney.
The COVID-19 situation is ever-evolving, with new governmental measures being implemented each day. This article will be updated as quickly as possible as new developments arise. Readers should consult with counsel for the latest developments and updated guidance on this topic.
Rick Duarte is the owner of The Duarte Firm, P.A., where he focuses his practice on business law. He received his law degree from the Emory University School of Law and has been named a “Rising Star” in Business Litigation by Florida Super Lawyers for 2016 – 2020. Rick also serves as general counsel to emerging and medium-sized businesses, guiding clients through corporate governance, risk management issues, and strategic decisions where business and law intersect.